Implications Of The Facebook Let-Down

You know, if Facebook were a Broadway show, they'd be firing the director and rewriting the script. Facebook share price closed this week at $27.72. That's more than a 25 percent drop from its initial public offering price. The social network's debut as a publicly traded company last month has been panned, questioned and trouble by a Securities and Exchange Commission probe and shareholder lawsuits.

Joe Nocera, our friend from the business world, joins us now. He's op-ed columnist for, what's it called, The New York Times, Joe? Thanks for being with us.

JOE NOCERA: Thanks for having me, Scott.

SIMON: Facebook's still worth a lot of money, but why has it fallen so flat so far?

NOCERA: Ah. Well, there's a reality-based reason and there's a psychological reason. The reality-based reason is that it has shown signs of slower growth and it acknowledged that a little bit before the IPO. And a lot of questions are being raised about what its ultimate business model will be. You know, how it will generate the kind of earnings that it needs to have the kind of super-charged stock that everybody wants it to be.

The psychological reason, though, is that, you know, this was the most anticipated IPO, I think, since Google, I mean, a really long time. And everybody wanted in and everybody thought the stock was going to go up and everybody thought they were going to make a killing. And then, they didn't. And so people are shying away from the stock just because the IPO, which is ultimately a meaningless event really in the long term, because the IPO did so poorly.

SIMON: And Facebook has, I gather, what amounts to two classes of shares that allow the founders of the company to keep more control. How typical is that?

NOCERA: Well, in Silicon Valley, it actually is quite typical. Google has the same thing and a number of other Silicon Valley companies have the same thing. And they do it for the obvious reason. You know, Mark Zuckerberg at Facebook wants to keep running this company without really having to answer to the shareholders who are buying into the company.

You know, it's hard not to have some sympathy for him. He did found the company, after all. But it's also another reason why investors have to be a little bit wary of Facebook because, ultimately, you know, Mark Zuckerberg does not really have to listen to anything they have to say.

SIMON: Yeah. Of course, you buy stock knowing that he's going to have a prominent role.

NOCERA: That's right. And, you know, he's 28 years old, but his track record is really quite remarkable. I mean, Facebook has almost a billion users and it has been a roaring success. And he has proven himself to be, I think, a first-rate CEO so far. The larger issue, Scott, is what kind of business model are they going to have?

And it's a very tricky proposition, whether you're 28 or whether you're 50, because if they ratchet up advertising too much, they lose their coolness factor, which is very, very important to them. And yet, if they start to rely - if they try to make money off all that personal data that they have, that raises privacy concerns and it gets government involved and that creates its own set of problems. So they're walking a fine line. And the real question is, can they walk that fine line and make a ton of money?

SIMON: How, if we might call it Facebook's troubles, what they're going through now, might that change the psychology of Silicon Valley and other venture capitalists who are contemplating sinking tons of money into the next big thing?

NOCERA: Well, one of the things that you have to remember about Facebook is that it's not a brand new company. As these things go, it's actually fairly mature when it came to the public market, and so, you know, the Silicon Valley folks, they've already moved on. You know, they're looking at mobile. They're looking at apps. They're looking for all kinds of things. Social media is kind of - is old. And so, you know, I would argue that the psychology is actually already changed.

SIMON: Joe Nocera, op-ed columnist for The New York Times, joined us from the studios of their radio foundation in New York City. Thanks so much, Joe.